French overhaul of labour market

Date: January 14 2013

Liz Alderman

LABOUR unions and business leaders struck a deal on Friday to overhaul swaths of France's notoriously rigid labour market, moving to tame some of the most confounding rules in the 3200-page code as the country tries to increase competitiveness and curb unemployment.

The changes would include more flexibility for employers to reduce working hours in times of economic distress without incurring strikes. High levels of compensation that courts can award to laid-off workers would be trimmed.

The five-year period that former employees now have to contest layoffs would be reduced. MEDEF, the employers' union, said this would ''reduce the fear of hiring''.

President Francois Hollande has said the changes are needed to burnish France's international allure as a place to do business, and the accord capped weeks of sparring among the five top labour unions and MEDEF.

The measures would help address what Louis Gallois, President Hollande's investment commissioner, has called a two-speed labour market in France.

Under that system, employees on long-term contracts enjoy extensive, costly job protections and benefits, while temporary workers, whose ranks have surged to a third of the labour force, have minimal job security and relatively few benefits.

In November, the government introduced a tax credit for companies, potentially worth €20 billion ($25 billion), aimed at easing high employment costs. In exchange, business negotiators agreed on Friday to pay higher taxes for short-term work contracts.

Two hard-line unions, the Confederation Generale du Travail and the Force Ouvriere, rejected the offer. But the deal is binding because France's three other main labor unions backed it.

The tax would help expand government coffers meant to support the unemployed while also nudging employers towards favouring long-term contracts. Employers would also pay somewhat higher contributions for private health insurance.

Whether the changes will come fast enough to fix the nation's problems is an open question. Some economists say France could become the next sick nation of Europe if it does not improve the environment for investment and hiring.

''Given the gap we still have between the level of labour market regulation in France and in countries like the United States, Britain and Ireland, it is very clear that when observers look at the outcome, they will say it's a step in the right direction, but not enough,'' said Dominique Barbet, the European economist for BNP Paribas in Paris.

But he added: ''You can't try to change the system overnight. That usually results in mass protests in the streets.''

The government is expected to sign off on the deal. It will help President Hollande keep a promise to reduce unemployment, now at a 13-year high of 10.7 per cent, by the end of the year. Youth unemployment is about 25 per cent.

By contrast, unemployment in Germany, which last decade made deeper cuts to labour costs and regulations than France is doing, is at 6.9 per cent and joblessness among the young is around 8 per cent.

Mr Hollande sought the accord after Mr Gallois issued a stark assessment in November, saying the country needed a ''competitiveness shock'' that would require cuts to regulation choking business.

His report said that unless France relaxed labour rules, the country would continue on a decline that destroyed more than 750,000 jobs in a decade and helped shrink its share of exports to the European Union to 9.3 per cent from 12.7 per cent.

France has already taken steps, with tax increases and spending cuts being applied to bring the budget deficit down to 3 per cent of gross domestic product in 2013, from an estimated 4.5 per cent in 2012.

''What's most important is that France gets an economic recovery,'' said Mr Barbet. ''If we don't have that, people won't hire no matter what the new labour rules are.''

NEW YORK TIMES

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